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Income Tax Appellate Tribunal, “C” Bench, Mumbai
Before: Shri Pramod Kumar & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-8, Mumbai, dated 23.04.2018, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 28.07.2016 for A.Y. 2014-15. The assessee assailing the impugned order has raised before us the following grounds of appeal: “‟The learned commissioner of Income Tax (CIT) erred in confirming the disallowances made by the Deputy Commissioner of Income Tax as under: (i) Disallowance of depreciation of Rs.9,17,274 on Lonawala property treating it as non business asset. (ii) Charge of notional rent of Rs. 10,43,065 of Lonawala house even though it is business asset. (iii) Disallowing Rs. 22,57,073 claimed as repairs to Lonawala property which is a business asset.
P a g e | Prasad Agents Private Limited Vs. ACIT-3(2)(2) (iv) Disallowing Rs. 1,67,860 on New Delhi CWGV (Common Wealth Games village) property as repairs to property. In brief the CIT has erred in the following for which this appeal is made to your honor. Amount Disallowance (i) 9,17,274 Disallowance of depreciation on Lonawala property. (ii) 10,43,065 Charging notional rent on Lonawala property. (iii) 22,57,073 Disallowance repairs on Lonawala property. (iv) 1,67,860 Disallowance repairs on Delhi Property The assessee urge that the Disallowance on the above be deleted. The above grounds of appeal are independent to each other and the assessee has a right to add, alter and amend any of the above grounds of appeal.”
Also, the assessee has raised the following „Additional Ground of Appeal‟ before us:
1. The learned CIT (Appeals) erred in law and in facts in ignoring the fact that the provisions of Section 115JB of the income tax Act 1961, contain a code by itself and therefore the said provisions are not to be interfered so lightly. Further, J additions to taxable income of Rs. 9,17,274/- being disallowance of depreciation on the property and disallowance on repairs amounting to Rs.24,24,433/-, could have been also made to income u/s 115JB of the Income Tax Act, 1961 by ignoring the provisions of Section 1I5JB of the Income Tax Act, 1961.
Briefly stated, the assessee company which is a NBFC mainly engaged in investing in shares/securities, mutual funds and also trading in shares/securities had e-filed its return of income for A.Y. 2014-15 on 26.09.2014, declaring its total income at Rs.65,18,400/-. Return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
On a perusal of the profit and loss account it was observed by the A.O that the assessee had inter alia claimed the following expenses:
Sr. No. Particulars Amount 1. Depreciation on Flat Amby Valley situated at Lonawala Rs. 9,17,274/-.
2. Repairs and maintenance expenditure in respect of Flat Rs.22,57,073/-. Amby Valley situated at Lonawala 3. Repairs and maintenance expenditure of property situated Rs. 1,67,860/- at CWGV, New Delhi Observing, that the assessee company was having its registered office at Nariman Point, Mumbai, the A.O called upon it to explain as to how the Flat at Amby Valley, Lonawala was being used for the purpose of its business. Apart there from, the assessee was also called upon P a g e | Prasad Agents Private Limited Vs. ACIT-3(2)(2) to put forth an explanation as to how the property situated at “Common Wealth Games Village” (for short „CWGV‟), New Delhi was being used for the purpose of its business. In reply, it was submitted by the assessee that the aforesaid properties were being used for the purpose of holding board meetings. However, the A.O was not inspired by the reply filed by the assessee. It was observed by the A.O, that the assessee which was having its registered office at Nariman Point, Mumbai, and was engaged in the business of share trading and making of investments in shares/securities, mutual funds etc., could not have used the abovementioned properties for the purpose of its business. In the backdrop of his conviction that the aforesaid properties were not being used by the assessee for its business purposes, the A.O disallowed the corresponding expenses claimed by the assessee in respect of the same viz. (i). depreciation claimed in respect of flat at Amby Valley, Lonavala : Rs.9,17,274/-; (ii). the repairs and maintenance expenses claimed in respect of flat at Amby Valley, Lonavala : Rs. 22,57,073/-; and (iii). the repairs and maintenance expenses claimed in respect of the apartment at CWGV, New Delhi of Rs.1,67,860/-. Apart there from, the A.O worked out the „Annual Lettable Value‟ (for short „ALV‟) under Sec.22 of the flat at Amby Valley, Lonawala at Rs.14,90,092/- i.e @ 8% of Rs.1,86,26,152/- (value of the property as per the deprecation schedule) and brought the same to tax under the head „house property‟. On the basis of his aforesaid deliberations, the A.O worked out the income of the assessee under the normal provisions at Rs.1,09,03,170/-. Further, the A.O modified the „book profit‟ under Sec.115JB by adding the aforesaid disallowance of depreciation and disallowance of the repairs and maintenance expenses, and worked out the same at Rs.2,40,77,285/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) not being persuaded to subscribe to the contentions advanced by the assessee upheld the additions/disallowances made by the A.O and dismissed the appeal.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We may herein observe that as per the registry the assesse‟s appeal involves a delay of 1 day. As is discernible from the records, as the last date on which the appeal was to be filed by the assessee i.e 01/07/2018 was a public holiday, therefore, it was filed on the very next date on 02.07.2018. In our considered view, as per Sec. 9 of the General Clause Act, 1897 r.w Sec. 4 of the Limitation Act, 1963, the appeal filed by the assessee under P a g e | Prasad Agents Private Limited Vs. ACIT-3(2)(2) the aforesaid circumstances i.e on 02/07/2018, is to be taken as having been filed within the stipulated time period. Accordingly, as there is no delay involved in the filing of the present appeal by the assessee, therefore, we proceed with the adjudication of the same on merits.
The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal took us through the „additional ground of appeal
‟ raised by the assessee. It was submitted by the ld. A.R, that the assessee in its „additional ground of appeal‟ has assailed the validity of the „book profit‟ determined by the A.O under Sec.115JB, for the reason, that the same was not as per the mandate of law. It was averred by the ld. A.R, that as the „additional ground of appeal‟ raised by the assessee involves a question of law on the basis of the facts available on record, therefore, the same may be admitted. Per contra, the ld. Departmental Representative (for short „D.R‟) did not seriously object to the raising of the aforesaid „additional ground of appeal‟.
8. We have perused the „additional ground of appeal‟ raised by the assessee and find that the validity of the „book profit‟ determined by the A.O under Sec.115JB has been assailed by the assessee before us. As the assessee by raising the aforesaid „additional ground‟ has sought an adjudication of a legal issue based on the facts already available on record, therefore, in the backdrop of the judgment of the Hon‟ble Supreme Court in the case of CIT Vs. National Thermal Power Company Ltd. (1998) 229 ITR 383 (SC), the same is admitted.
9. We shall first take up the „additional ground of appeal‟ raised by the assessee before us. It is submitted by the ld. A.R, that the additions made by the A.O to the „book profit‟ under Sec.115JB clearly militates against the express provisions of the said statutory provision which does not provide for any such modifications. In support of his aforesaid contention, the ld. A.R had relied on the judgment of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT (2002) 122 taxman 562 (SC). Relying on the aforesaid judgment, it was submitted by the ld. A.R, that as per the settled position of law the only additions/reductions for the purpose of working out the „book profit‟ under Sec.115JB were prescribed in the „Explanation‟ to the said statutory provision. Accordingly, it was averred by the ld. A.R, that as the aforesaid additions/disallowance made by the A.O viz. (i). depreciation on property; and (ii). disallowance of the repair and maintenance expenses of property, does not fall within the realm of the additions/reductions envisaged in the „Explanation‟ to Sec.115JB, therefore, the A.O had P a g e | Prasad Agents Private Limited Vs. ACIT-3(2)(2) traversed beyond his jurisdiction and had wrongly added the same while working out the „book profit‟ of the assessee company. As regards the merits of the case, it was submitted by the ld. A.R, that as both of the aforesaid two properties viz. (i) Flat at Amby Valley, Lonawala; and (ii) Apartment at CWGV, New Delhi were being used by the assessee for its business purposes, therefore, the lower authorities were in error in disallowing the corresponding depreciation and the repair and maintenance expenses pertaining to the said properties. In order to fortify her contention that the aforesaid properties were being used by the assessee for its business purposes, it was submitted by the ld. A.R that depreciation on the flat at Amby Valley, Lonawala had been allowed by the revenue in A.Y. 2013-14 and A.Y. 2015-16. Also, it was submitted by her that the flat at CWGV, New Delhi had been sold by the assessee in May, 2016 and the „capital gain‟ arising from the said sale transaction had been shown as the income of the assessee company in A.Y. 2017-18. Accordingly, it was the claim of the ld. A.R that as the aforesaid properties had been accepted by the revenue as a „business asset‟ in the aforesaid preceding/succeeding years, therefore, it would be incorrect on its part to adopt an inconsistent approach and decline the claim of depreciation and repair expenses in context of the said properties by drawing a contrary view during the year under consideration.
Per contra, the ld. D.R relied on the orders of the lower authorities. It was submitted by the ld. D.R, that as the aforesaid properties were not being used by the assessee for its business purposes, therefore, the corresponding claim of depreciation and repair expenses had rightly been declined by the lower authorities.
We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. Our indulgence in the present appeal has been sought by the assessee for adjudicating four issues viz. (i) validity of the adjustments made by the A.O for working out the „book profit‟ under Sec.115JB of the Act; (ii) the sustainability of the disallowance of depreciation claimed by the assessee in respect of flat at Amby Valley, Lonawala; (iii) the sustainability of the disallowance of the repair and maintenance expenses incurred by the assessee in respect of its aforesaid properties; and (iv). assessing of the notional „ALV‟ of the flat at Amby Valley, Lonavala under the head „house property‟.
P a g e | Prasad Agents Private Limited Vs. ACIT-3(2)(2) 12. We shall first advert to the claim of the assessee that the A.O had erred in carrying out modifications to the „book profit‟ under Sec.115JB, for the reason, that the same do not fall within the realm of the additions/reductions prescribed in the „Explanation‟ to Sec.115JB of the Act. Admittedly, as per the settled position of law, the A.O while computing the „book profit‟ under Sec.115JB has only the power of examining whether the „books of accounts‟ are certified by the authorities under the Companies Act, as having been properly maintained in accordance with the provisions therein envisaged. In fact, the A.O thereafter has the limited power of making additions and reductions as provided for in the „Explanation‟ to the said section. To put it differently, the A.O does not have the jurisdiction to go behind the „net profit‟ shown in the „profit & loss account‟ except to the extent provided in the „Explanation‟ to Sec. 115JB. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT (2002) 122 taxman 562 (SC). Now, in the backdrop of the aforesaid settled position of law, we are of the considered view that as the additions made by the A.O viz. (i) disallowance of depreciation under Sec.32 : Rs.9,17,234/-; and (ii) disallowance of repairs and maintenance expenses: Rs.24,24,433/- do not fall within the realm of the modifications contemplated in the „Explanation‟ to Sec.115JB, therefore, the working of the „book profit‟ under Sec.115JB by the A.O by making the aforesaid additions to the „net profit‟ of the assessee, not being in conformity with the mandate of law cannot be sustained and are liable to be vacated. On the basis of our aforesaid observations, the additions‟ made by the A.O to the „net profit‟ for computing the „book profit‟ under Sec.115JB are vacated. The „additional ground of appeal
‟ raised by the assessee is allowed.
13. We shall now advert to the claim of the assessee that the lower authorities had erred in declining to allow the assesse‟s claim for „depreciation‟ and „repairs and maintenance expenditure‟ in respect of its property i.e Flat at Amby Valley, Lonawala. As is discernible from the records, it is the claim of the assessee that the aforesaid property was being used for the purpose of its business. However, the A.O having serious doubts as to how the assessee which was having its office at Nariman Point, Mumbai, and was engaged in the business of share trading and making of investments in shares/securities, mutual funds etc. could have used the aforesaid property for the purpose of its business, thus called upon it to justify its claim. We find that the assessee in order to drive home its contention that the property under consideration P a g e | Prasad Agents Private Limited Vs. ACIT-3(2)(2) was being used for its business purposes, had placed on record the „minutes‟ of its board meetings dated 26.09.2013 and 25.02.2013. As was discernible from the „minutes‟ of the board meetings, it was noticed by the A.O that the issues taken up in the respective meetings pertained to viz. (i). repair work being carried out in the property at Amby Valley, Lonawala; and (ii). the telephone expenses of the director. Also, the assessee in order to fortify its claim that meetings on the aforesaid respective dates were carried out at the abovementioned property at Lonavala, had filed with the A.O the copies of the toll tax payment receipts and also the copies of the petrol bills. Observing, that the evidence submitted by the assessee did not inspire much of confidence, as such trivial matters viz. discussions about the telephone expenses etc., would not have required travelling for several hours from the routine office premises at Nariman Point, Mumbai to Lonavala, the A.O declined to accept the claim of the assessee that the aforesaid property was used for its business purposes. Accordingly, on the basis of his aforesaid observations the A.O declined to allow the assesse‟s claim for deprecation and also the repair and maintenance expenses incurred in relation to the aforesaid property. Apart there from, the A.O had also brought the „ALV‟ of the aforesaid property to tax under the head „Income from house property‟.
Insofar the aforesaid observations of the A.O are concerned, we are in agreement with the view taken by the CIT(A) that the evidence filed by the assessee to substantiate its claim that the property under consideration viz. flat at Amby Valley, Lonawala, was being used for its business purpose, does not inspire any confidence. At the same time, we also cannot remain oblivious of the contention of the assessee that its claim for depreciation in respect of the aforesaid property in A.Y. 2013-14 and A.Y. 2015-16 was allowed by the revenue in the said respective years. In sum and substance, it is the claim of the assessee, that now when the aforesaid flat at Amby Valley, Lonawala had been accepted by the revenue to be a „business asset‟ which was wholly and exclusively used for the purpose of its business in the immediately preceding/succeeding years, therefore, an inconsistent and a contrary view in the absence of any change in the facts of the case could not have been drawn during the year under consideration. We find substance in the aforesaid claim of the assessee. In our considered view, in light of the principle of consistency, if the facts permeating though various years remained the same, then it would not be permissible for the revenue to adopt an inconsistent P a g e | Prasad Agents Private Limited Vs. ACIT-3(2)(2) approach and take a contrary view. Our aforesaid observation is fortified by the judgment of the Hon’ble Supreme Court in the case of Radhasoami Satsang Vs. CIT (1992) 193 ITR 321 (SC). However, as the aforesaid claim of the assessee that the depreciation in respect of the aforesaid property i.e flat at Amby Valley, Lonawala was allowed by the revenue in A.Y. 2013- 14 and A.Y. 2015-16 is not verifiable from the records before us, therefore, for the said limited purpose we restore the matter to the file of the A.O. In case, if the revenue in the course of an assessment framed under Sec. 143(3) for either of the aforesaid years i.e A.Y. 2013-14 or A.Y. 2015-16 had allowed the assesses claim of depreciation on the aforesaid property viz. Flat at Amby Valley, Lonawala, then in the backdrop of the principle of consistency, the view to the contrary arrived at by the A.O during the year under consideration would not be justified. At this stage, we may however clarify, that in case the aforesaid claim of the assessee had not been accepted pursuant to a scrutiny assessment, and had only summarily been accepted, then the same will have no bearing on the observations drawn by the A.O in respect of the aforesaid issues pertaining to the abovementioned property during the year under consideration i.e A.Y 2014-15. Accordingly, the Grounds of appeal
No. (i) to (iii) are allowed for statistical purposes in terms of our aforesaid observations.
15. We shall now advert to the claim of the assessee that the A.O had erred in disallowing its claim of repair and maintenance expenses of Rs.1,67,860/- pertaining to its apartment at CWGV, New Delhi. As observed by us hereinabove, it is the claim of the ld. A.R, that as the property under consideration was owned by the assessee company during the year under consideration, therefore, its claim for repair and maintenance expenses in respect of the same was well in order. However, the A.O being of the view that the assessee could not substantiate that the aforesaid property was used wholly and exclusively used for the purpose of its business, therefore, had declined the aforesaid claim of expense so raised by it. Admittedly, as is discernible from the orders of the lower authorities, the assessee had not been able to substantiate by leading any documentary evidence before the lower authorities that the aforesaid property was being used for its business. At the same time, it is the claim of the assessee that the aforesaid property was sold in May, 2016 and the resultant „capital gain‟ on its sale has been shown as the income of the assessee company in A.Y. 2017-18. As the said claim of the assessee cannot be accepted on the very face of it, therefore, in all fairness we P a g e | Prasad Agents Private Limited Vs. ACIT-3(2)(2) restore the issue to the file of the A.O for making necessary verifications as regards the same. In case the aforesaid claim of the assessee is found to be in order and the „capital gain‟ on the sale of the aforesaid property had been accounted for by the assessee company in its return of income for A.Y. 2017-18, and accepted by the revenue, then it would be incorrect to conclude that the expenditure incurred by the assessee towards repair and maintenance of the said property was not to be allowed as a deduction under Sec. 37 of the Act. We thus restore the issue to the file of the A.O, who shall after making necessary verifications in terms of our aforesaid observations readjudicate the issue. Ground of appeal
No. (iv) is allowed for statistical purposes.
16. The appeal of the assessee is allowed for statistical purposes in terms of our aforesaid observations. Order pronounced in the open court on 23.10.2019 Sd/- Sd/- (Pramod Kumar) (Ravish Sood) VICE PRESIDENT JUDICIAL MEMBER भ ुंफई Mumbai; ददन ुंक 23.10.2019 PS. Rohit आदेश की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to : अऩीर थी / The Appellant 1. 2. प्रत्मथी / The Respondent. 3. आमकय आम क्त(अऩीर) / The CIT(A)- आमकय आम क्त / CIT 4. विब गीम प्रतततनधध, आमकय अऩीरीम अधधकयण, भ ुंफई / DR, ITAT,
5. Mumbai ग र्ड प ईर / Guard file. 6. सत्म वऩत प्रतत //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीऱीय अधिकरण, भ ुंफई / ITAT, Mumbai.
P a g e | Prasad Agents Private Limited Vs. ACIT-3(2)(2)